The prospects of the renewable energy (RE) sector in Malaysia are strong, backed by the government’s commitment towards RE making up 70% of generation capacity mix by 2050. A leading photovoltaic (PV) system contractor locally, SLVEST is also building a portfolio of PV assets for recurring incomes. Backed by strong fundamentals, we project its earnings to grow by 53% and 67% in FY24-25, respectively. We initiate coverage on SLVEST with an OUTPERFORM call and TP of RM1.47.

RE to the fore. The recently announced National Energy Transition Roadmap (NETR) lays down the pathway for Malaysia’s transition to RE with a target of RE making up 70% of generation capacity mix by 2050. We foresee solar to account for >90% of the new RE capacity (>20GW) in Malaysia, backed by various initiatives including Feed-in Tariff (FiT) programme, Net Energy Metering (NEM) mechanism, Large-Scale Solar (LSS) and Corporate Green Power Programme (CGPP). Furthermore, the lifting of the export ban on RE and the establishment of a central electricity exchange operated by a singlemarket aggregator to ensure pricing transparency will provide additional growth impetus to the local RE sector.

A top PV system contractor. SLVEST is a leading PV system contractor in Malaysia with a market share of over 30%. It offers engineering, procurement, construction, and commissioning (EPCC) and operation & maintenance (O&M) services for PV systems. It has competed PV systems in LSS and rooftop solar (residential, commercial and industrial sectors) with a cumulative capacity of >1000MWp. It is also building a portfolio of PV assets for recurring incomes. It has made some inroads into regional markets, i.e. Taiwan, the Philippines and Singapore. SLVEST has a strong clientele with MNCs, public listed companies and reputable private firms such as Dexcom, Nefin Group, Behn Meyer, Lotus’s, Petronas, Chin Hin, Beshom and NTPM.

Expanding portfolio of solar assets. SLVEST is growing its portfolio of solar assets under LSS, CGPP and FiT programmes driven by the government as well as its own rooftop assets. It aims to grow its recurring income to represent 30% of annual revenue through C&I and LSS. C&I mainly comprise power purchase agreement (PPA) under the Powervest programme which has a 600MWp project pipeline. Upon completion, SLVEST will have a total 199.8MWp (C&I: 44%; LSS: 34%; CGPP: 22%) in its asset portfolio.

Multiple earnings drivers. We project FY23-24F earnings growth of 53% and 67%, respectively, driven by: (i) outstanding EPCC order book of RM289m (that will keep it busy for two years) and a tender book amounting to 3.1GWp (Malaysia: 52%, Regional: 48%), (ii) asset ownership from LSS4 (67.3MWp) and Powervest programme (88MWp), and (iii) EPCC project opportunities amounting to at least 250MWp through CGPP.

We initiate coverage with an OUTPERFORM call. We derive a TP of RM1.47 for SLVEST based on SoP valuation, valuing its EPCC segment at 30x FY25F PER, in-line with the average historical 1-year forward PER of the solar EPCC sector and its LSS4 and Powervest assets by discounted cash flow. Note that our TP reflects a 5% premium given a 4-star ESG as appraised by us.

Source: Kenanga Research - 12 Dec 2023